Correlation Between IShares ESG and Vanguard ESG

Can any of the company-specific risk be diversified away by investing in both IShares ESG and Vanguard ESG at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares ESG and Vanguard ESG into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares ESG Aware and Vanguard ESG Stock, you can compare the effects of market volatilities on IShares ESG and Vanguard ESG and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares ESG with a short position of Vanguard ESG. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares ESG and Vanguard ESG.

Diversification Opportunities for IShares ESG and Vanguard ESG

-0.1

Correlation Coefficient

IShares ESG  Vanguard ESG

Good diversification

The 3 months correlation between IShares and Vanguard is -0.1. Overlapping area represents the amount of risk that can be diversified away by holding iShares ESG Aware and Vanguard ESG Stock in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Vanguard ESG Stock and IShares ESG is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares ESG Aware are associated (or correlated) with Vanguard ESG. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Vanguard ESG Stock has no effect on the direction of IShares ESG i.e., IShares ESG and Vanguard ESG go up and down completely randomly.

Pair Corralation between IShares ESG and Vanguard ESG

Given the investment horizon of 90 days iShares ESG Aware is expected to generate 0.94 times more return on investment than Vanguard ESG. However, iShares ESG Aware is 1.06 times less risky than Vanguard ESG. It trades about 0.11 of its potential returns per unit of risk. Vanguard ESG Stock is currently generating about -0.09 per unit of risk. If you would invest  3,376  in iShares ESG Aware on December 20, 2024 and sell it today you would earn a total of  227.00  from holding iShares ESG Aware or generate 6.72% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.33%
Values	Daily Returns

iShares ESG Aware  vs.  Vanguard ESG Stock

iShares ESG Aware

Risk-Adjusted Performance

OK

Compared to the overall equity markets, risk-adjusted returns on investments in iShares ESG Aware are ranked lower than 8 (%) of all global equities and portfolios over the last 90 days. In spite of rather unsteady technical and fundamental indicators, IShares ESG may actually be approaching a critical reversion point that can send shares even higher in April 2025.

Vanguard ESG Stock

Risk-Adjusted Performance

Very Weak

Over the last 90 days Vanguard ESG Stock has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable technical and fundamental indicators, Vanguard ESG is not utilizing all of its potentials. The current stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Pair Trading with IShares ESG and Vanguard ESG

The main advantage of trading using opposite IShares ESG and Vanguard ESG positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares ESG position performs unexpectedly, Vanguard ESG can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Vanguard ESG will offset losses from the drop in Vanguard ESG's long position.

The idea behind iShares ESG Aware and Vanguard ESG Stock pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Volatility module to check portfolio volatility and analyze historical return density to properly model market risk.